Spend Analysis Pro Tips
Analyzing your spend is easier said than done. Same goes for executing cost reduction projects based on that analysis. The Spend Analysis experts at SpendConsultant and Corcentric make your life a bit easier with our Spend Analysis Pro Tips. Here you’ll find tips and tricks for actionable spend analysis, straight from the data scientists and category subject matter experts at Corcentric.
Spend Analysis Pro Tip #1
Collect Enough Historical Data
“How far back should we look,” this is among the first questions a Procurement team should ask themselves when collecting data for a spend analysis. The answer depends on the type of product or service you’re in the market for. For commodity purchases, a year’s worth of data is typically sufficient. A month worth of office supply orders won’t tell us much about typical usage.
Sometimes it’s necessary to go back even further. Take Capital Expenses, for example. Several years might pass between these purchases, and these periods will likely prove relevant to your analysis. The moral of the story? Failing to collect enough historical spend data poses considerable risks. At a minimum, you could find yourself developing an inaccurate or ineffective market basket for your sourcing initiative. Worst still, you might mistakenly exclude important supplier relationships from your analysis.
Spend Analysis Pro Tip #2
Don’t Settle for Data
Too often, Procurement professionals get fixated on the data part of data analysis. On its own, data doesn’t offer much. It’s nothing but raw information. To put a savings plan into action, you’ve gotta turn that data into both knowledge and wisdom.
That’s what’s so great about SpendConsultant. It not only provides a platform for slicing and dicing historical spend data, but it offers your team an opportunity assessment calculator. It immediately puts your data to work producing savings and efficiency for your organization. Give it a try today.
Spend Analysis Pro Tip #3
Sometimes More is Less
You’re probably familiar with the phrase less is more. When it comes to spend analysis, that old cliche most definitely applies.
Throughout a spend analysis, it’s often tempting to take a deep dive into highly-granular spend data. Many expensive platforms exacerbate the issue. They bombard Procurement teams with a level of detail that’s certainly nice to have, but mostly just distracts from the real work of cost reduction initiatives. Kicking off a strategic sourcing campaign rarely requires more than a few essential data points.
Think of spend analysis as a map. The details it provides should help you get from Point A (your current spend profile) to Point B (savings) as easily as possible. Attempting to make this journey using an excessively detailed report is a lot like trying to drive cross-country with a topographical map. When all you’re trying to do is get to California in one piece, it’s not all that important to know your elevation.
There’s a time and a place for highly detailed spend analyses. Once you’ve identified a clear path toward savings, your Procurement team can take a look at whatever details it pleases. Just remember, granular analysis without an established strategy will only lead to wasted time and missed opportunities.
Spend Analysis Pro Tip #4
Don’t Rely on Automation
Manual spend analyses are daunting. Procurement teams are tasked with collecting data from a variety of sources. Then there’s the daunting process of reviewing the data, removing duplicates, standardizing the information, and correcting any other errors. Certainly, full automation would make you Procurement department’s lives easier, right? Not necessarily.
Automation certainly makes life easier when it comes to supplier identification and classification. You might run into trouble, however, if the tool’s hard-coded rules aren’t flexible to your organization’s unique spend profile.
Fortunately for you, SpendConsultant empowers your spend analysis efforts with semi-automation. The cutting-edge tool combines the efficiency of automation with the accuracy of manual, customizable classification tools.
Spend Analysis Pro Tip #5
Account for Shifting Spend Trends
Collecting historical data has benefits well beyond revealing missing data. Comparing supplier data year-over-year enables your Procurement team to observe emerging trends. For example, you might observe a drastic increase or decline in spend with a specific supplier. What might a $100,000 drop in spend over a year tell you about a specific supplier relationship? Quite a lot.
This is no random example. As companies move away from physical printed materials to digital alternatives, spend for commercial printing has plummeted year-over-year. Is it worth your company’s time to continue spending any money on a supplier who might not be around in the near future? Almost certainly not.
Taking a close, regular look at your historical spend can prove enlightening. You’ll better understand how your purchases have evolved and better maintain a fluid sourcing strategy.
Spend Analysis Pro Tip #6
Don’t Ignore Low-Spend Suppliers
Your Procurement team is looking to produce the maximum possible value from its spend analyses. As a result, it’s sometimes tempting to ignore suppliers that look like small fries on paper. Spend analysis initiatives, however, are rarely so simple. Oftentimes, spend consolidation opportunities are more valuable than relationships with high-spend vendors.
Typically, it’s easier to exercise leverage in negotiations with low-spend suppliers. Offering a greater purchase volume in exchange for more competitive rates, for example, can create a win-win situation for both sides.
Consolidation can also provide soft-dollar savings opportunities. Think of how much simpler things become when you’re contending with a small supply base. Failing to classify these small spend suppliers could mean missing out on opportunities to eliminate inefficient relationships. Existing agreements with small fries can provide opportunities for leverage and consolidation, but only if you pay attention.
Spend Analysis Pro Tip #7
Use Proper Data Cleansing Techniques
Improper cleansing techniques can make it difficult or impossible to take an accurate look at the supplier landscape. It might require a little elbow grease, but it’s important to identify discrepancies in naming conventions, duplicates, and other recording errors when assessing your spend data.
AT&T, for example, presents a number of opportunities to run into trouble. Your spend analysis system could classify this organization in a number of different ways. AT&T, AT and T, ATT, and A T T are just a few of the different ways you might designate the vendor.
These issues become more pronounced when multiple supplier databases are maintained separately, communication between business units is sporadic, or when separate databases are combined haphazardly. The supplier fragmentation caused by inconsistent naming can make large suppliers appear insignificant and compromise your analysis.
Spend Analysis Pro Tip #8
Don’t Ignore Niche Players
Just because you can consolidate your supply base doesn’t mean you should. It’s important to understand the strategic value that each supplier brings your organization. One way to do this is by collaborating closely with other departments within your organization.
IT, Marketing, and other departments often complain that Procurement fails to understand the strategic nature of their supplier relationships. Breaking down silos can lead to illustrative and informative conversations. Oftentimes, these conversations will help Procurement uncover the sort of strategic value-adds that a spend analysis cannot show.
Before attempting to consolidate your supply, take care to interview internal stakeholders from every department within your organization. Learn what they look for in a strategic partnership, and apply their objectives to your spend analysis. You’ll not only better identify the right suppliers, but you’ll help encourage cross-department collaboration.
Spend Analysis Pro Tip #9
Do Your Due Diligence
From the outside, spend analysis can look daunting. Once you’re engaged in a spend analysis, the process can grow both tedious and time consuming. This is particularly true when your Procurement team is forced to contend with a large and diverse supply base.
Procurement departments can easily feel tempted to neglect smaller suppliers or apply broad stroke strategies in their spend analysis. In the name of saving time and effort, they cut corners and wind up creating much more work for themselves down the road.
It’s absolutely essential to fully invest in analyzing your spend data and supply base. By reaching out to stakeholders and developing a working understanding of their universe, you’ll establish a foundation for effective strategic sourcing initiatives.
Spend Analysis Pro Tip #10
Taking a deep dive into spend can easily lead to paralysis by analysis. Even the best, most thorough spend analysis, however, doesn’t provide any value if your team fails to reach an actionable conclusion.
Bogged down by inefficient processes, poor stakeholder relationships, and needlessly granular data, many spend analysis drag on for far too long without producing results. By the time these analyses are ‘finished,’ techniques have grown outdated, leadership has frown disinterested, and savings opportunities have come and gone.
To make matters worse, an ineffectual spend analysis could lead management to resist the process in the future. That means your spend data will only grow more more mysterious and unmanageable as time goes on.
Spend Analysis Pro Tip #11
Watch Out for the Domino Effect
Rest assured, spend analysis mistakes are generally interconnected. An error – improper cleansing, for example – sets your Procurement team up for a series of related errors. Each successive error will compound your lost savings and bring additional headaches to the process of spend analysis.
Extreme caution and close attention are essential from the very start of your spend analyses. Effectively preparing for your initiative is a great first step. Ensure you’ve got the right team, armed with the right tools and techniques.
Once your spend analysis is underway, take care to remain conscious of every potential stumbling block. Maintain close communication with all relevant stakeholders and take care not to trust your automated systems too much. With any luck, you’ll avoid a string of initiative-halting mistakes.
Spend Analysis Pro Tip #12
Price and Usage Aren’t Enough
Price and usage data are a great start, but they’re just the tip of the iceberg when it comes to spend analysis. To truly turn your data into actionable sourcing strategies, your Procurement team needs to look well beyond these figures.
Factors like quantity price discounts, shipping costs, early payment discounts, contract terms, quality levels, and scopes of work can all prove instrumental in developing savings initiatives.
Failing to collect enough data could lead your team to miss out on savings and mistakenly pursue inefficient, non-value adding supplier relationships.
Spend Analysis Pro Tip #13
Establish a Schedule for Data Cleanses
Just because your data is clean right now doesn’t mean it’s going to stay that way. Maintaining data cleanliness is an ongoing, all-important task.
Over the years, your company will not only collect additional data, but priorities and rules for governing data will evolve. Establish a regular schedule for assessing spend your data to address new purchasing trends and determine whether your rules still apply.
With regular assessments and cleanses, you’ll better ensure the long-term cleanliness of your data.
Spend Analysis Pro Tip #14
Taxonomies Have Limitations
Spend classifications like UNSPSC codes and other industry standards don’t work for everyone. It’s important to review these systems to ensure they fit your specific needs and for classifying spend categories and identifying savings opportunities
Spend Analysis Pro Tip #15
Review Taxonomies Regularly
Businesses and their spend patterns change. Some of these changes might invalidate the taxonomies you use to classify and catalog spend. Be mindful of activities that might necessitate a change and develop plans for implementing these changes.